Are Investment and gambling are same for you ?

Gambling : Defined According to WIKI  : Gambling is of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money …

According to Webster’s Dictionary  : An act of betting on an uncertain outcome

Well as we know that the outcome of the investment is uncertain at the time investment is made,we can say that it involves the some part of gambling also in every investment .Specially when we try to invest in something new.However the investment which we properly examine before investing and research it then it can’t be called as gambling.

The main part of gambling activity includes the luck factor;while it is not so with the proper investment thing.Unlike the investors and speculators the gamblers are risk lovers as the get huge bonus or reward for taking that risks.Though the chances of winning is very slim in it.

Though many a times there is hardly a difference between the investment,gambling and speculation, many times it depends on the opinion of the people.Aggressive investors are likely to decide on investments based among other things,on their speculative and gambling instincts more than the defensive or conservative investors do.

Almost 70% of the general people just go way with their guts.They go for more risks for more return.Many losses and many make profit.It then become a speculation type of investment instead of genuine one.Specially the youth and younger generation go for it because they are earning and they can afford any type of risks.

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How a Bond is issued

On Par it is generally sold at par, which is the face value of the bond.

Premium

One would buy a bond at a premium (paying more than the duration), since these bonds, interest (and interest) are higher than expected current bond market.The bond premium is the present value of future payments of both interest and maturity minus the non-discounted amount of debt maturity. In short, the bond market is very efficient. In the case of bonds, the real interest rate will be higher than in line with market expectations, selling more bonds than the maturity of the bond amount. If the bond rates will be lower than the rate in line with market expectations, bonds selling for less than the maturity of the bond amount. The difference (premium or discount) is calculated by discounting all future cash amounts.

Consider a bond selling in 2007 for $1000 with an annual coupon payment of $100.

What is the coupon rate? $100 / 1000 = 10%

Now suppose that in 2008, the same bond yields an a huge growth of 15% in interest payments annually.

What is the coupon payment? 15% x 10,00 = $150 per year.

Which one would you prefer buying?

At 8% coupon rate or 12% coupon rate?

As a simple investor i think you will go for 12% coupon rate.Since the value of the bond cash flows produced has appreciated from 100 per year to a $150 per year, this bond will have to be sold at a premium price due to its performace.

Discount : This is that type of bond in which it is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market. Well according to just the definition It is is sold at a price below its face value and returns its face value at maturity. also called discounted bond.Some of the short term ones, such as the U.S. Treasury Bill, are always issued at a discount, and pay par amount at maturity rather than paying coupons. This is called a discount bond.

Example it is just opposite to the Premium one.

Now suppose a bond is selling in 2007 at $1000 with an annual coupon payment of $100.

coupon rate? $100 / 1000 = 10%

Now suppose that in 2008, the same bond yields an a negative growth of 8% in interest payments annually.

What is the coupon payment? 8% x 10,00 = $80 per year.

Which means that the value of bond has decreased as compared to the previous year which will lead it to be sold at discount.

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